Computable General Equilibrium Model of Sudan Economy with Special Emphasis on Agricultural Sector

Abstract

This study aimed to introduce the Computable General Equilibrium (CGE) model for Sudan economy for the year 2000 to analyze the possible effects of liberalization policy on Sudan economy, with special emphasis on the agricultural sector. Specifically, it assessed the impact of macroeconomic policy tools (import tariffs, activity tax and exchange rate) on macroeconomic variables (GDP, balance of trade, government budgets, total absorption and private consumption) and on sectoral level of domestic output, employment, imports, and exports. In addition, it investigated the impact of the world price shocks (exports and imports) on the economy and the effect of improving agricultural technology on the performance of the economy. It also tried to specify the optimal mix of liberalization policy that achieves higher economic performance. Data was collected from different sources including Central Bureau of Statistics, Bank of Sudan, Ministry of Finance and Economic Planning and Sudan Custom Police. Social Accounting Matrix (SAM) for Sudan economy for the year 2000 was built, being the core database for the CGE model. Different policy simulations were undertaken to assess the impact of the liberalization policy using the CGE model. The model results revealed that indirect tax reduction (import tariff and activity tax) had improved the economy performance with deterioration in the balance of trade. It also argued for increasing the direct tax to compensate for the declining government income. Depreciation of exchange rate has better impact on the economy and agricultural sector than appreciation. On the other hand, the negative effect of appreciation on the economy can be reduced if it simulated with indirect tax reduction and improving agricultural efficiency. The model results also revealed that the industrial sector plays a key role in determining total domestic output level in absence of agricultural efficiency, while the agricultural sector is the determining one if agricultural efficiency introduced. The results also showed that the increase in agricultural imports world price had a greater negative effect on the GDP and a more positive effect on the balance of trade, than the increase in industrial imports world price, which would be improved by adoption of exchange rate depreciation or improving agricultural efficiency. In addition, it showed that increasing the sectoral exports world price would lead to increase the exports of the corresponding sector nevertheless it did not attain improvement in total exports unless there was high efficiency in the agricultural sector. It also revealed that the increase in the exports world price of the industrial sector alone had the most negative impact on the balance of trade, with higher improvement in the GDP. The results indicated that improving agricultural efficiency would lead to further positive effect of macroeconomic policies and offset the negative effect of international price increase. The study highly recommended improvement of agricultural efficiency through introduction of improved technology, research and agricultural extension services. It also recommended combination of depreciation of exchange rate and indirect tax reduction as an optimal policy mix. In addition, it encouraged the production of import-substitute goods and inputs to improve the balance of trade deficit. Considerable attention should be given to other economic sectors beside petroleum industry, specially the agricultural sector for ensured balanced development of the economy.